Judge OKs plan to save capital by selling Harrisburg's incinerator

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HARRISBURG — A plan to help rescue Pennsylvania's capital from the brink of bankruptcy won an important stamp of approval on Thursday from a judge, whose support is necessary for the sprawling deal to go forward under an unprecedented state takeover of Harrisburg's finances.

Commonwealth Court Judge Bonnie Brigance Leadbetter called the plan involving the sale of the city's debt-wracked trash incinerator and borrowing by a state economic development agency “the best chance I think this city has seen in a long time to get its fiscal house in order.”

Leadbetter made the remark after a two-hour hearing on the plan; the hearing was assembled by Harrisburg's state-appointed financial custodian and a team of lawyers and financial advisers paid by the state. Court approval is required for the plan under a 2011 law that unleashed the state takeover of the troubled city.

Lawyers for Harrisburg Mayor Linda Thompson, City Council and the city's largest creditors — Dauphin County and bond insurer Assured Guaranty Municipal Corp. of New York — told Leadbetter that they, too, support the plan. The harmony is a marked contrast to several years of lawsuits and public posturing, which has engulfed the city; a third of the 49,000 residents live below the poverty line.

Not all of the elements have been finalized, however, in a complicated deal to relieve hundreds of millions of dollars of debt and erase persistent budget shortfalls in the city. Negotiations are ongoing in an effort to win contract concessions from the city's firefighters union. An element of the plan, which involves a low-cost refinancing of some city debts, could be threatened if interest rates rise on municipal bonds.

The custodian, William Lynch, submitted the 350-page plan on Aug. 26. It involves selling the city's municipal trash incinerator, on which the city is unable to repay the $350 million debt.

It also involves borrowing $283 million by a state economic development agency largely to pay off various city debts — including $100 million in city parking authority debt. The state agency, the Pennsylvania Economic Development Financing Authority, would be repaid by receipts from the city's parking lots, meters and garages.

Most of the city's labor unions have agreed to concessions to help save Harrisburg more than $4 million a year. Gov. Tom Corbett's administration and various state agencies provided crucial aid.

Meanwhile, the city's creditors have agreed to walk away from potentially more than $100 million — concessions that members of City Council who were initially opposed to the state takeover had long sought in any debt deal.

Neil Grover, a lawyer for City Council, said Lynch's office secured the concessions after getting agreements with smaller creditors that could have put larger creditors at risk, were Lynch to take the matter to federal bankruptcy court.

The strategy “provided the city with the one thing it had not had ­— real leverage,” Grover said.

The sale of the incinerator to Lancaster Solid Waste Management Authority is valued at $126 million to $132 million and is expected to close in early November.

Harrisburg piled $100 million in debt onto the incinerator by 2003, when City Council approved an expensive retrofit of the aging and polluting facility as an alternative to shutting it down; the retrofit went awry, however, and took much longer and became much more expensive than initially forecast.

Harrisburg city residents now pay among the highest trash disposal rates in the nation, although the facility cannot generate nearly enough money to pay the debt.

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